While the past several decades have seen extensive overseas development
assistance projects, joint implementation projects are a new phenomenon; the concept arose
out of the Framework Convention on Climate Change in 1992. IJI projects differ from
traditional development assistance projects in that IJI projects must meet a detailed set
of criteria established by the USIJI Evaluation Panel, and they must either reduce or
sequester emissions of greenhouse gases. Because of IJI's newness, there are no precedents
from which we can project the greenhouse gas reduction/sequestration outcomes of a given
project or the potential obstacles IJI projects may face some years in the future. This
means that IJI contracts may be less precise than those associated with traditional
international development projects; they should contain language that allows developers
some flexibility in responding to evolving international responses to the threat of
climate change.

Abstract Quality of the Central Commodity

Another unique feature of the IJI program is that it revolves around
what is in essence an abstract good: greenhouse gas reduction or sequestration, the exact
value of which the international community has not determined. How does one
"sell" something that does not exist or preserve a right to an intangible? The
Conference of the Parties in April of 1995 decided that no credit toward meeting national
commitments is to be given for GHG reductions until at least the year 2000, making it
difficult to assess the future value of carbon offsets. However, near-term benefits may be
associated with the reduction that one or more of the participants wish to formalize.

This uncertainty sets the IJI process apart from other international
development programs and will require contracting arrangements that account for the
"intangible" nature of the central commodity. Project lawyers, accustomed to
designing contracts covering tangible assets, will need to learn about the carbon market
and develop language that takes into consideration a high level of uncertainty.

Long-Term Nature of the IJI Process

One of the main challenges facing would-be IJI project developers is
ensuring project sustainability over long periods of time. Not only do IJI projects need
to meet the host country's internal development goals, which are usually long-term, but
they must also continue to reduce or sequester greenhouse gases far into the future. Thus,
some projects, such as land-use projects, which may involve the planting of entire
forests, must be designed to continue for many decades. This raises the issue of how
project developers can guarantee sustained operation of the project, including monitoring
and verification, and financing, in the climate of uncertainty described above. For
example, the RUSAFOR project near Saratoy, Russia, provides for the planting of seedlings
on 500 hectares of formerly marginal agricultural land. Because it involves virtually
planting an entire forest, this project is expected to last well into the next century.

Long-term concerns over project survival can be heightened even further
by the additional risks associated with implementing a project in a developing country.
Evolving political, social, and economic environments in developing countries may also
provide challenges to the American partner, since some government representatives who
today sign an agreement with a U.S. partner may not be in office during the project's
implementation. Similarly, a country's legal environment may also change over time. Russia
and several countries of Eastern Europe, for instance, are in transition from centrally
controlled economies to market economies. Thus, in addition to accounting for time frames
far into the future, joint implementation contracts in many cases will also need to
operate in environments of political uncertainty.

The Legal Climate of the Host Country

Before initiating a IJI project, partners must understand both the legal
and business climate of the host country. There can be differences in expectations between
U.S. project developers and their foreign hosts, owing in large part to differences in the
legal and commercial environments between the two countries. Indeed, the U.S. legal
structure may differ from those found in other countries; similarly, legal terms and
definitions may also vary from country to country. U.S. developers of the Plantas Eolicas
project in Costa R/ca, for example, observed that the host country partners had a very
different style of negotiating contracts, compared to what the U.S. team was accustomed to
at home. The Costa R/can decision-making style was much less centralized, involving a
large pool of participants; decisions tended to be made at the group level, and the chief
negotiator of the Costa R/can team did not have substantial decision-making authority.
This manner of doing business lengthened the contracting process and required the U.S.
team to make some adjustments in its negotiation style to accommodate the different
business culture.

Thus, to avoid misunderstandings, frustration, and the potential for
project failure, prospective proposers should learn about the business and legal climate
of the host country, and they should learn as much as possible about their foreign partner
as well. Useful information on these subjects can be obtained in numerous books and
articles found in public and university libraries. Embassies and consulates also provide
this information, in most cases free of charge. Most project developers will also want to
engage an attorney having experience in international transactions.

Since other countries often have very different legal structures than
United States, project developers need to adapt their approaches accordingly. Past
participants advise future applicants to retain a good local counsel who is familiar with
the legal structure of the host country. Such lawyers can be invaluable resources
throughout the project development process. One past project developer even had the host
country attorney draft all legal documents and pass them to the U.S. attorney for final
comment and review. Using in-country attorneys is often more cost-effective than using
U.S, lawyers, since the former have a greater awareness of local circumstances. Engaging a
local legal expert may therefore help reduce transaction costs associated with a IJI
project. However, one should not rely too heavily on local attorneys, for while they may
be excellent contract lawyers, often they do not have extensive experience in the area of
project finance. Thus, project developers will clearly also need to have expert U.S.
counsel to help protect assets overseas.

Lawyers within the host country can be identified through various means.
The best recommendations come through informal referrals from people who have worked
directly with them; business associates are often a good source for referrals. Scholars
from the target country visiting at local universities may likewise be able to recommend a
lawyer back home whose credentials match a developer's needs. Other options would be to
contact such organizations as the country's Embassy in Washington, D.C.; the Center for
International Environmental Law in Washington, D.C.; the Sierra Club Legal Defense Fund;
or the International Energy and Natural Resource Committee of the American Bar
Association's International L, aw Division. The Interamerican Bar Association in
Washington, D.C. also makes referrals to established lawyers in the countries of North and
South America. (see note 1)

In addition to a local attorney, it is extremely helpful to have access
to someone in the host country who is familiar with the country's political culture and
decision-making system. This person may or may not be the local attorney. The ideal local
expert would have contacts in the government and in other organizations and may provide
useful suggestions on how to expedite various aspects of the project implementation
process. He or she may also be able to provide assistance if things appear to be held up
somewhere within the country's government. This expertise is especially valuable in
countries where personal contacts and other informal structures are key to getting things
done. Through a network of local contacts, for example, the U.S. partners in the RUSAFOR
project learned that it was best to initiate the project at the highest levels of
government possible, instead of gaining entry at a lower level and working up, since the
project would need acceptance by those in the top echelons of the government. Once they
became aware of this top-down approach and developed relationships with high-level
officials, project developers found that they were able to obtain requisite signatures
fairly quickly. Thus, a local advisor can help identify both the formal and informal
channels for accomplishing contracting objectives.

Notes

1. The Center for International Law in Washington, D.C. can be reached
at (202) 3324840; the Sierra Club Legal Defense Fund's telephone number is (415) 627-6700,
and the ABA can be reached at (202) 831-2200. The Interamerican Bar Association number is
(202) 393-1217.